Mitigating Risks

Urban regeneration projects are risky by definition. There are many barriers to overcome in building successful PPP models for regeneration areas. The private sector will not invest in regeneration areas without a substantial public sector commitment. The role of the public sector is to create confidence in a regeneration area as an investment location and reduce the level of risk for investors. This can be achieved through various mechanisms, as seen in table below.

Table: Framework for assessing and mitigating risks

Public sector participation in urban regeneration projects is especially key when there is a sizable risk for the private sector. The public sector is able to bring to the table direct kinds of financing, including through land and subsidies. Different types of risks have varying degrees of incidence throughout the project’s life cycle. Risks can include (a) project risks (problems that arise during project implementation); (b) commercial risks (linked to economic cycles and expectations of players in the real estate sector); (c) external risks (such as demands from community groups and civil society organizations); and (d) political risks (related to political stability and policy and regulatory changes) (Lindfield 1998).

The choice of the components of the regeneration project is an important factor in encouraging private sector participation with regard to financing and implementation. A key element for success is to ensure that the project’s components adequately meet the interests of all stakeholders in the process. Ideally, a project should include a combination of public interest investments (improving roads and infrastructure, sanitation and drainage, public parks and playgrounds, cultural monuments, public-use buildings) and commercial investments of interest to the private sector. These can include space for offices, shops, malls, hotels, restaurants, convention centers, and housing. In these cases, mixed-use developments can provide a good design framework for coexistence and complementarity.